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Assessing the performance of auctions for the allocation of conservation contracts: Theoretical and computational approaches

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  • Hailu, Atakelty
  • Schilizzi, Steven
  • Thoyer, Sophie

Abstract

There is a growing interest in using auctions for purchasing public goods from private agents. Auctions are being trialed in Australia and elsewhere to allocate conservation contracts. The expectation is that competitive bidding will reduce information rents and increase cost-effectiveness. This paper examines how auctions would perform under different assumptions regarding the rationality of bidders. A theoretical model requires bidders to be rational and use Nash equilibrium strategies, while an agent-based model assumes boundedly rational bidders learning from experience. The study illustrates the synergies between economic theory and agent-based modelling. Our findings provide a cautionary message regarding the performance of conservation auctions.

Suggested Citation

  • Hailu, Atakelty & Schilizzi, Steven & Thoyer, Sophie, 2005. "Assessing the performance of auctions for the allocation of conservation contracts: Theoretical and computational approaches," 2005 Annual meeting, July 24-27, Providence, RI 19478, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea05:19478
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    References listed on IDEAS

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    1. John Ledyard & Jasmina Arifovic, 2003. "Computer Testbeds: The Dynamics of Groves-Ledyard Mechanisms," Computing in Economics and Finance 2003 244, Society for Computational Economics.
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    3. James Nicolaisen & Valentin Petrov & Leigh Tesfatsion, 2000. "Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing," Computational Economics 0004005, EconWPA.
    4. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-1499, November.
    5. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    6. Hon-Snir, Shlomit & Monderer, Dov & Sela, Aner, 1998. "A Learning Approach to Auctions," Journal of Economic Theory, Elsevier, vol. 82(1), pages 65-88, September.
    7. A. Roth & I. Er’ev, 2010. "Learning in Extensive Form Games: Experimental Data and Simple Dynamic Models in the Intermediate Run," Levine's Working Paper Archive 387, David K. Levine.
    8. Jordan J. S., 1995. "Bayesian Learning in Repeated Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 8-20, April.
    9. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
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    Cited by:

    1. Schilizzi, Steven & Latacz-Lohmann, Uwe, 2013. "Conservation tenders: linking theory and experiments for policy assessment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(1), March.
    2. Schilizzi, Steven & Latacz-Lohmann, Uwe, 2005. "Can a simple model predict complex bidding behaviour? Repeated multi-unit conservation auctions," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137947, Australian Agricultural and Resource Economics Society.
    3. Atakelty Hailu & Sophie Thoyer, 2005. "Multi-Unit Auctions to Allocate Water Scarcity Simulating Bidding Behaviour with Agent Based Models," Others 0512012, EconWPA.
    4. Schilizzi, Steven & Latacz-Lohmann, Uwe, 2009. "Predicting the performance of conservation tenders when information on bidders's costs is limited," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48171, Australian Agricultural and Resource Economics Society.
    5. Rousseau Sandra & Moons Ellen, "undated". "Auctioning Conservation Contracts: An Application to the Flemish Afforestation Policy," Energy, Transport and Environment Working Papers Series ete0606, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.

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    Keywords

    Environmental Economics and Policy;

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